TMI Blog2014 (4) TMI 1088X X X X Extracts X X X X X X X X Extracts X X X X ..... tor. We also found that the assessee has regularly treated shares as investment in the earlier year and has offered gain on sale of shares under the head “capital gain”. Respectfully following the decision of the Tribunal in case of assessee’s brother, wherein facts and circumstances are same, we do not find any merit in the action of the lower authorities for treating the short term capital gain as business income, when the AO himself has accepted assessee’s investment in shares which resulted in long term capital gain as it is. - Decided in favour of assessee. - ITA No.1454/Mum/2012 - - - Dated:- 22-4-2014 - SHRI R.C.SHARMA, AM And DR.STM PAVALAN, JM For the Appelant: Mr. Dharmesh Shah For the Respondent : Mr. M.L.Perumal ORDER PER R.C.SHARMA (A.M.) This is an appeal filed by the assessee against the order of CIT(A), dated 14-12-2011 for the assessment year 2008-09, in the matter of order passed under Section 143(3) of the I.T. Act. 2. The only grievance of the assessee relates to treatment of capital gains on sale of shares as business income. 3. Rival contentions have been heard and record perused. Facts in brief are that the assessee is a doctor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has treated the purchase of shares as Investments in books and not as Stock-in-trade . The assessee has her own capital orRs.50,775,287/- to invest in the securities. It indicates that the assessee has restricted her investment activity to the extent of her own funds, whereas the trader would borrow money in order to maximize profits The assessee is holding the shares for a long period and does not indulge in any day trading. Assessee has taken delivery of shares in all cases. The average holding period is 92 days. Even in respect of shares held for less than 30 days, they had to be sold off in order to reap benefits of appreciation or to. avert further erosion in value. This clearly demonstrates that the assessee is an investor and not a trader in shares. Therefore, the income arising out of this activity should be charged to tax as capital gains and not as income from business or profession. As mentioned above, assessee's main intention while investing is to hold the same for long term appreciation and / or earning dividend income and accordingly profit earned on such scrips is capital gains. The Madras High Court in the case of CIT vs. N.S.S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rade and those which are held by way of investment. All the transactions under reference entered into by the assessee have been settled by actual delivery of shares and the money is actually paid and received in each and every case; whereas in case of a trader, ordinarily, the transactions are settled without actual delivery. The purchase sale transactions are settled only by way of receipt/payment of net difference. This is not the case with the assessee as is obvious from the statement of short term capital gain. The assessee acquires shares with intention to have long term appreciation and to earn dividend income and accordingly characterized them as investment in her books of accounts. The assessee has always made investments in shares of quoted, reputed companies based on sound records. The assessee has earned ₹ 145,407/- as dividend income for the year. The CBDT has clarified that even if a tax payer is a trader for some stocks, he can be investor in other stocks. However, the AO did not convince with the assessee s contention and treated the short term capital gains as business income. The precise observation of the AO was as under :- In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess and those which are transacted for Investment. By the impugned order, the CIT(A) confirmed the action of the AO and assessee is in further appeal before us. 4. It was contended by the learned AR that the issue under consideration is squarely covered by the order of Tribunal in the case of assessee s brother Dr. Rahul in ITA No.827/Mum/2012, vide order dated 12-6-2013. Learned AR further demonstrated that finding of the AO as well as CIT(A) in the case of Dr. Rahul (supra) was pari material to the findings of the AO Cit(A) in assessee s case, which has been considered by Tribunal and decided in favour of assessee. The precise observation and conclusion of the Tribunal are as under :- 8. We have considered the rival submissions and perused the orders of the lower authorities and the material evidence brought on record in the form of paper book. The dispute is regarding the nature of income from sale and purchase of shares by the assessee. The issue, whether the income from sale and purchase of shares in a particular case should be treated as capital gain or as business income has been a debatable issue and there are conflicting decisions of the Tribunal on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the only borrowings are from family members and the income and expenditure account of the assessee does not reflect any claim of interest payment which means that the assessee has made investments not out of borrowed capital. 8.2. Considering the profession of the assessee, it cannot be said that the assessee was fully devoted to the stock market transaction. Considering the nature of profession and the facts in totality, in our considered view, the lower authorities have erred in treating the Short Term Capital gains as business income. We accordingly direct the AO to treat the STCG as declared by the assessee. On that note, we reverse the findings of the Ld. CIT(A). Ground No. 1 2 are accordingly allowed. 5. Learned AR further argued that assessee is fully busy in her profession of doctor. She is a winner of Orbis Gold Medal as co-author. She is also an editor and reviewer for several journals including British Medical Journal and McGill Journal of Medicine. Further assessee has got additional qualification of Fellowships in Retina and Ocular Immunology. Learned AR highlighted the additional qualification of the assessee as an author of two book chapters, 9 article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays. Even in respect of shares held for less than 30 days, they had to be sold off in order to reap benefits of appreciation or to avert further erosion in value. As per learned AR, since the assessee s main intention was investing and holding shares for long term appreciation and to earn the dividend income thereon, the profit earned on such scrips is liable to be assessed as capital gains. Reliance was placed on the decision of Hon ble Madras High Court in the case of CIT Vs. NS.S.Investment (P) Ltd., 277 ITR 149, wherein it was held that profit from sale of shares acquired by assessee for earning dividend and not held as stock-in-trade is to be treated as capital gains and not business income. Reliance was also placed in the decision of Hon ble Supreme Court in the case of CIT Vs. Holck Larsen, 160 ITR 67, wherein it was held that where the transactions of purchase and sale of shares were to nurse investment and to avoid erosion of capital, surplus arising from sale of shares is to be treated as capital receipt. 5.3 Our attention was also drawn to the total number of transactions entered during the year which was 258. It was submitted that this frequency arises on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of transaction, which are being assessed as income from Capital Gains in the past several years. iii) Nagindas P. Sheth (HUF)'s case (ITA 18361Mum/2010) wherein Hon'ble Tribunal while deciding upon the magnitude of transactions held that, merely because assessee transacted in 158 shares that should not be taken as a sole criterion to come to the conclusion that assessee is a trader in shares. 5.6 In view of all these facts, he contended that the AO was not justified in treating the short term capital gains as business income, when he himself has accepted the long term capital gains earned by the assessee with respect to the similar shares held by her. 6. On contrary, learned DR contended that there was high frequency in transaction, volume of shares were also more. He submitted that each case is to be decided on its own facts and circumstances, accordingly, even though brother of the assessee was also a doctor, having similar source of income as capital gains, which was decided by the Tribunal in assessee s favour, the case of assessee cannot be said to be covered by the decision of the Tribunal in assessee s brother s case. 7. We have considered rival conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm capital gain or business income. This cannot lead to the conclusion that the investment activity of the assessee is a business. It is clear from the record that the assessee has earned income from profession of doctor which is her principal activity. Thus, the activity of investment in shares carried out by the assessee is only incidental. The investment objective of assessee is to generate capital appreciation with the help of expert advice from the reputed brokers without having to spend her time on the activity. Continuity or permanence in investments made itself indicates that the assessee's intention is to stay invested for a longer period for earning capital appreciation and dividend. Being a prudent investor, the assessee purchased shares when prices were falling and sold shares when the scrip achieved its target -or it had anticipated further erosion in value. The transactions of purchase and sale of shares were to nurse investment and to avoid erosion of capital, surplus arising from sale of shares is to be treated as capital receipt. Although, overall there is a gain, the assessee has suffered loss in few transactions. Only because the assessee has not suffered net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that assessee has disclosed shares as investment in the balance sheet, there is no claim of any expenses while computing capital gains which demonstrates the intention of the assessee to treat the shares and securities as investment and not as stock-in-trade. No borrowed interest bearing funds was invested in shares. CBDT in its Instruction No 1827 dated 31.08.1989 has laid down certain criteria to determine whether an activity of purchase sale of shares/securities is in the nature of trading activity or investment activity. One of the criteria laid down is the treatment given by the assessee in its books of account as a trading asset or investment; treatment given in the books is indicative of assessee's intention whether to hold the shares with a view to earn dividend long term appreciation or with a view to carrying on as business. Even various Courts and Tribunals have approved that treatment given by the assessee in its books of account as a vital factor to decide whether the assessee is a trader or an investor. We also found that the assessee has regularly treated shares as investment in the earlier year and has offered gain on sale of shares under the head capital g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consistency under the same facts and circumstances is one of the fundamentals of the judicial principles which cannot be brushed aside without proper reason. 7.5 In this case, the AO has himself relied on the decision of Hon'ble Supreme Court in Anil Jain Vs CIT (294 ITR 435) where the matter was restored to ITAT on the ground that the assessee having furnished the details of purchase and sale of securities/shares effected by him in subsequent years to show that there was continuity of such transactions and that the profits derived by him in subsequent years have been accepted as business income and the Tribunal having ignored the same, the judgments of the High Court and the Tribunal are set aside' and the matter is remitted to the Tribunal for consideration of the matter afresh as to whether the transaction in question was a business transaction. In this decision the Supreme Court restored the matter back to Tribunal since the High Court and the Tribunal ignored the decision made in the subsequent years in case of the assessee. Thus the Supreme Court itself considered that there should be consistency in the treatment given by the revenue in case of similar transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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